The market situation at the end of 2024 is significantly different from this time last year. Last year, the market discussed the possibility of the Federal Reserve cutting interest rates six times in 2024, while this year's discussion is that the Federal Reserve may not be able to even cut interest rates twice in 2025. Currently, the market expects the Federal Reserve to cut interest rates by approximately 36 basis points in 2025.

Among all central banks planning to continue cutting interest rates, the Federal Reserve is considered by the market to have the smallest rate cut, and the risk probability has undergone significant changes.

So, what changes have occurred? The biggest change is undoubtedly the result of the US presidential election. Trump's victory changed the situation, threatening to impose massive tariffs and tax cuts on US trading partners. This has caused trouble for the Federal Reserve, as it still hopes to bring inflation back to 2%.

Despite recent fluctuations in the process of de inflation, overall it is still cooling down. However, the complex outlook makes it difficult for the market to foresee that the inflation target will smoothly and clearly return to 2%. Especially in the United States, consumer spending remains strong despite a slowdown in the labor market.

Therefore, the real risks facing the US dollar are closely related to the US economy, especially how Trump's policies may affect all of this. The market's current expectation is that Trump will ultimately fulfill his campaign promises, which is also reflected in the market's more hawkish expectations for the Federal Reserve, and the recent FOMC meeting seems to support this view.

Therefore, market reactions indicate that if a risk event occurs that leads to a significant deviation from the above expectations, it will be detrimental to the US dollar. Specifically, several situations may have a significant impact on the US dollar:

1. The economy will perform relatively weakly in 2025, and there will be more looseness in the labor market.

The anti inflation process is progressing smoothly and accelerating in the new year**

Trump's tariff measures were not as strong as expected, leading to reduced inflationary pressures.

4. Trump's tax cuts have encountered resistance, giving the market more time to digest the related impacts.

Forexlive believes that the current sentiment is still quite intense, especially after the recent policy decisions of the Federal Reserve. The dot plot of the Federal Reserve and Powell's speech indicate that the Fed may pause interest rate hikes in January, depending on economic development, providing some support for the US dollar at the end of the year.

However, as has been the case this year, this support momentum may eventually fade and a reversal may occur. In mid-2024, the market is only discussing one rate cut by the Federal Reserve, rather than the six expected rate cuts in December 2023.

Therefore, the outlook for 2025 remains uncertain, and the market has a rough expectation of what may happen in the future, but nothing is certain. In trading, the trading process is as important as the final destination.